Amazon (AMZN) International Segment Profitability To Watch
$Amazon.com(AMZN)$ will be reporting its fourth-quarter results, which are scheduled for release on 06 Feb after the market close.
Analyst have been expected a strong results which should benefit from fulfillment and headcount leverage. Analyst’s $187 billion sales estimate aligns with consensus, while the $19.7 billion GAAP operating profit forecast exceeds the Street’s $18.9 billion.
The retail data supports revenue growth, and AWS is likely to meet 19% – 20% growth expectations, aided by AI contribution.
The consensus earnings per share forecast is expected to come in at $1.48 around 48% higher than the same period last year.
Amazon (AMZN) Guidance To Robust Growth Might Came From AWS
In the Amazon Q3 2024 earnings call, guidance revealed robust growth across multiple metrics, with revenue reaching $158.9 billion, reflecting an 11% increase year-over-year, excluding foreign exchange impacts. Operating income surged by 56% to $17.4 billion, while trailing 12-month free cash flow adjusted for equipment finance leases climbed by 128% to $46.1 billion.
The Stores business showed commendable growth, with North American sales increasing by 9% and international sales by 12%. Amazon Web Services (AWS) also demonstrated strong performance, growing 19.1% year-over-year, achieving an annualized run rate of $110 billion, and contributing significantly to the company's financial results. Advertising revenue grew by 18.8% to $14.3 billion. The call emphasized Amazon's focus on customer satisfaction, cost reduction, and strategic investments in AI and robotics to drive long-term growth and profitability.
For this fourth-quarter earnings, we might be seeing AMZN showing reduction in retail sales with the closing of closing its Go store, and the expenses in closing these stores might eat into the revenue.
Strong revenue from AWS should be the catalyst for this earnings.
Amazon (AMZN) Previous Quarterly Earnings Positive Call Give Investors 29.86% Gains Since
We saw AMZN share price have a significant change of 29.86% since its last earnings call on 31 Oct 2024, the sentiment coming from the call was positive as the earnings call highlighted significant revenue and operating income growth, driven by successful Prime events, AWS expansion, and increased advertising revenue.
However, there were some challenges with lower ASPs and a slight decline in the third-party sales mix. Overall, the highlights of rapid growth and robust financial performance outweigh the lowlights.
These are the important factors that might affect the upcoming earnings result.
Stronger Revenue and Operating Income Growth Expected. AWS Growth and AI Expansion
Amazon reported $158.9 billion in revenue, marking an 11% year-over-year increase excluding foreign exchange impacts. Operating income rose by 56% to $17.4 billion, the highest quarterly operating income ever.
In the third quarter, AWS saw a 19.1% year-over-year growth, reaching a $110 billion annualized run rate. Amazon's AI business is growing at triple-digit percentages year-over-year and is expanding rapidly with significant investments in custom silicon like Trainium2.
We could be seeing a stronger revenue growth as more and more companies are using cloud based AI services which AWS have a pretty matured ecosystem.
Advertising Revenue To Increase
Amazon's advertising segment generated $14.3 billion in revenue, growing 18.8% year-over-year. This should continue to do well with Amazon advertising segment getting better focus with sellers on the AI enablement.
International Segment Profitability Coming From AWS International Demand
The international segment saw operating income of $1.3 billion, an improvement of $1.4 billion year-over-year, with continued profitability in each quarter of 2024. This should be coming from AWS services demand from other regions as more and more organization continue to move into the cloud to enable AI services.
Lower Average Selling Prices But The Tariffs Might Change This
In the previous quarter, there is a noted impact of lower average selling prices (ASP) due to increased sales of everyday essentials, which may affect revenue growth despite strong unit growth. This might change as competition from $Wal-Mart(WMT)$ could take some of the revenue growth as well.
The third-party unit mix declined slightly to 60% in Q3, influenced by a shift towards more first-party sales in the everyday essentials category.
Amazon (AMZN) Price Target Still Got Room To Move Higher
Trading around $240, AMZN is at a 38X forward earnings multiple which isn't an overly stretched premium to the benchmark S&P 500 and is near Microsoft’s 31.5X. Also encouraging to long-term investors is that AMZN trades well below its five-year high of 161.3X forward earnings and offers a steep discount to the median of 66X during this period.
Based on 41 Wall Street analysts offering 12 month price targets for Amazon in the last 3 months. The average price target is $261.21 with a high forecast of $306.00 and a low forecast of $212.00. The average price target represents a 7.91% change from the last price of $242.06.
Technical Analysis - Exponential Moving Average (EMA)
AMZN have been holding up quite well in the highs not losing any trend, but we need to be aware of a possible $235 price level if there is a daily downtrend.
We are close to that level, but so far we are seeing quite a nice uptrend since last week, but I think the bulls might continue to go for a further trend continuation and AMZN have seem to give a blast off post earnings, but we need to understand the different level of support that AMZN might need to watch out.
So I will be watching how AMZN would be trading today (05 Feb), as it need to keep up to around the $240.
I am holding my position for long term but might add more stocks if deem fit.
Summary
I would think AMZN cloud services, AWS should be in good stead as AI revolution is moving away from spending big amount of money to develop their strategy.
So AWS AI services which allow developers to bring LLM models to test and develop might be something that would gather more demand from organizations and individuals.
Appreciate if you could share your thoughts in the comment section whether you think AMZN would be able to give an earnings surprise?
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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